Parting Shots: Time for the steel industry to play offense on automotive

Ford Motor Co. announced in the last week of July its intention to redesign the F-150 pickup truck, replacing its steel body with aluminum. General Motors Co. and Chrysler Group LLC seconded that motion in the last week of August, announcing plans to replace steel with aluminum in their pickup trucks. Significantly, we have not yet heard from Toyota Motor Corp.

Hard on the heels of these two body blows came an announcement by Pittsburgh-based Alcoa Inc. that it had received an order to supply aluminum alloy drill pipe to a customer operating in the Marcellus shale. The significance of these three events cannot be overemphasized.

The auto body competition is not new. It has gone on for 30 years, and steel has always prevailed in volume applications where cost mattered. Yes, the new Corporate Average Fuel Economy (CAFE) standards drove the automakers decisions. But should they have? In a working paper titled Overriding Consumer Preferences with Energy Regulations released by the Mercatus Center at George Mason University in Virginia, Ted Gayer of the Brookings Institution and W. Kip Viscusi of Vanderbilt Law School concluded, Environmental benefits play a largely incidental role in the impact analyses of CAFE standards for passenger cars and light trucks. When benefits are restricted to only the United States, they drop to just over 1 percent of the total claimed benefits. In other words, unelected bureaucrats at the National Highway Traffic Safety Administration and the federal Environmental Protection Agency know whats best for the American consumer.

Steel companies in North America have a multi-front war on their hands. Their markets are under attack by imports and a new assault from aluminum. The first casualties in this new war were visible when RG Steel LLCs plants were publicly auctioned in August. Ominously, ThyssenKrupp AG has announced a review of its investment in the United States, with the sale or a joint venture of its recently completed mill in Calvert, Ala., appearing likely.

The partnership between the automotive and steel industries has been a valiant and modestly successful effort that has deferred the day of reckoning--a day which is now at hand. Steel has been playing defense; now it is time to move to offense. This is not to suggest that steel companies have been totally inactive in new product development. The standing seam pre-painted steel roof has been a resounding success. Residential steel framing is a good idea that was launched with some fanfare, but it has not been vigorously exploited. Successful market development does require some funding, but more importantly it requires leadership by committed people who see it as a unique career-enhancing opportunity.

Thomas C. Graham is a founding member of T.C. Graham Associates. He is a former chairman and chief executive officer of AK Steel Corp., president and chief executive officer of Armco Steel Co. LP, chairman and chief executive officer of Washington Steel Co., president of the U.S. Steel Group of USX Corp. and president and chief executive officer of Jones & Laughlin Steel Co. His column appears monthly. He invites readers to comment and can be reached at tom.graham@tcgrahamassociates.com.

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